The Antitrust Division won a preliminary skirmish against two co-defendants who challenged the criminal indictment against them charging price-fixing in the labor market. District Court Judge Mazzant, in the Eastern District of Texas, issued a decision denying the defendants’ motion to dismiss in United States v. Neeraj Jindal & John Rodgers, 20-CR-358. (Here).
In rejecting the defendants’ motion, the trial judge ruled that price-fixing in the labor market is a per se violation of the Section 1 of the Sherman Act, rather than a rule of reason violation of Section 1. The decision was a relief to prosecutors because of their continuing strategy of prosecuting criminal cases for price-fixing/wage-fixing agreements in labor markets.
The factual background is relevant – Jindal owned a physical therapist staffing agency, Company A, and Rodgers was a physical therapist who contracted with Company A and was a clinical director at Company A. Rodgers reported to Jindal.
Company A contracted with physical therapists and physical therapist assistants to provide home physical therapy to patients. Typically, Company A receives referrals from home health agencies. Therapist staffing agencies compete with each other to contract PTs and PTAs. Company A pays them respectively a rate for their services. Staffing agencies charge home health agencies a marked up rate to earn profits based on difference of rate paid by home health and rate paid to PTs and PTAs.
The alleged conspiracy focuses on agreements reached between Company A and another staffing agency regarding the rates they paid to PTs and PTAs. The Indictment recounts an agreement reached through text communications between Rodgers, acting at Jindal’s direction, and an individual at another staffing agency during which they agreed to pay PTs a rate of $45 per hour.
After this agreement was reached, Jindal text four other staffing agencies to recruit them to join the conspiracy to pay lower rates. Subsequently, Rodgers and Individual 2 implemented an agreement to lower pay to PTAs and PTs.
The legal analysis focus on Section 1 of the Sherman Act, which provides: “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1
Most restraints are analyzed under a rule of reason analysis that distinguishes between the anti-competitive effect of a restraint and considers the procompetitive aspects of the restraints. A small category of restraints, which are deemed per se violations, however, have no conceivable procompetitive justification, and are therefore treated as a per se violation. These agreements include horizontal price fixing, bid-rigging, customer allocation and territorial allocation agreements among competitors. The Antitrust Division has restricted criminal prosecutions of Section 1 violations to these per se violations.
The defendants’ motion to dismiss claimed that the indictment failed to describe the specific type of Section 1 violation and that he did not receive fair notice that his conduct was criminal. In particular, the defendants claimed that the Indictment did not charge a price-fixing agreement, but only charged a wage-fixing agreement.
In rejecting defendants’ motion, the court cited the fact that the prohibition against price-fixing has been applied to a variety of “price-fixing” agreements, including agreements that set minimum prices, maximum prices, fix credit terms, set fee schedules, purchase surplus products to remove from market, refuse to advertise prices, and excludes categories of purchasers. The court explained that any agreement among competitors – whether buyers or sellers – that fixes components that affect price falls under the horizontal price-fixing prohibition.
The court further explained that the Sherman Act applies to not only sellers of goods and services but to buyers of services, such as employers of labor in labor markets. The court cited Supreme Court cases that upheld the application of the Sherman Act to labor markets and purchasers of labor.
Based on these legal principles, the court concluded that wage-fixing agreements are per se illegal and can be prosecuted criminally under the Sherman Act.
